Constantine Biller, International Head of Industrials & Chemicals, discusses market drivers.
The number of European buy-outs in the industrials sectors has grown steadily in the last few years and in 2018 is likely to reach the highest level since 2007. What are the big factors driving this?
There are multiple factors combining to make the broader industrials sector an active space for private equity buyers and sellers, and M&A in general. From a macro perspective, and despite political headwinds in some regions, economic outlooks have improved significantly in recent years and this has provided a fillip to a number of areas within industrial sub-sectors.
Another driver is that many global industrials groups have become conglomerates over the last decade or so and they have now realised that they are too widely spread and not sufficiently focused on growth areas. This means that many of the large groups are shedding their non-core activities and these opportunities are ideal for private equity investors. General Electric Co is the classic example of this at the moment. At a time when European private equity sponsors have unprecedented amounts of dry powder available to them, competition to deploy capital is strong.
Also, whether we like it or not, environmental factors are increasingly driving M&A in the industrial sector, with the automotive industry in particular being driven by autonomous vehicles and electro-mobility. Obviously, environmental and energy-preservation factors are relevant in other industrial sectors as well.
Industrial machinery and suppliers have driven the statistics in Q3, with high dealflowand some high multiples being recorded. What are the factors that are driving some of the premium prices being paid?
While not strictly limited to companies operating in these subsectors, one of the most important factors in the Industrials segment as a whole is ‘Industry 4.0’ -the increasing automation of industrial equipment or what is often called “smart manufacturing”. Linked to this point is the increasing connectivity and digitisation in the industrials sector as groups use data to manage their production activities. As a result of these trends, industrial groups and their backers are very keen indeed to make acquisitions which will allow them to keep pace with the market. Again, alongside strong interest in the region from financial and corporate buyers from Asia and other global regions, this is helping to push up competition and prices for the best assets.